Dear Governor: Who’s Threatening the Alaska Economy?

Published: March 29, 2011

Dear Neighbors:

Today amendments and debate will start on the Governor’s oil tax rollback bill in the House Finance Committee – where I have to run in a few minutes. I’d like to update you on that, a potential crisis in education funding that has school districts gagging with worry, and a few of my bills that are moving (fishing stream access; insurance coverage for colonoscopy screening; and foster care reform).

The Governor’s Number’s Add Up – for Exxon, British Petroleum and Conoco – But Not for You.

Over the past two weeks the Governor’s proposal to roll back Alaska’s share of oil revenue the state receives by $1.5 - $2 billion a year has fallen apart – at least if logic is a guide. The best evidence is an ad the Department of Natural Resources - Division Oil and Gas just put in the Petroleum News. It says the current law is working, is drawing a fair share of revenue for the state, stating in part:

“The state has been a good partner for new explorers” and that “Alaska is successfully encouraging investment from companies that are new to the state with the number of petroleum companies doing business in Alaska almost doubling between 2006 and 2008.”

I do want to thank the Governor for conceding that. You may recall that Senator French and I asked that he start conceding to the investment community that Alaska has a very generous investment incentive system, and that advertising our system, instead of scaring companies away with warning about how much it needs to be changed, would do better to bring investment to Alaska.

While the state has exaggerated a case to roll back oil taxes, the evidence has shown from committee testimony that:

- 74% of industry officials surveyed do not see Alaska’s law as a deterrent to investment.

- Development wells are up to their highest level since 2006.

- Exxon and BP officials conceded they will not invest in any new exploration wells if the Governor’s bill passes, and Conoco refused to commit either way.

- No company has committed to produce any new oil if the bill passes.

- The state has selectively offered charts of those jurisdictions with lower taxes than Alaska, and carefully withheld information about the scores of jurisdictions with tax rates of 80 and 90% and more, where taxes are higher than in Alaska.

- Conoco wants to develop in NPR-A under current law (as is only being blocked by an Army Corp of Engineers permit decision we hope will be reversed); plans are moving ahead for new development in Umiat, by a Spanish entrant named Repsol, and by Great Bear Petroleum, which purchased leases on a half million acres to develop oil with “fracking” technology – leases that were purchased last year, before the Governor’s bill was announced.

And the Repsol example is instructive. A day after they issued an unqualifiedly clear press release that they plan to invest $768 million in exploration in Alaska, non-Repsol folks started telling the press Repsol’s plan is contingent on the Governor’s bill passing. No one from Repsol has ever said that, and, even if they do change course – that’s just smart politics. If you’re an oil company and someone is offering you lower taxes, you bluff and say all your plans are contingent on the tax reduction passing.

There are smarter ways to add oil into the pipeline than just giving $1.5 billion in profits to companies, and to tell them they can just keep it, give it to their shareholders, and not invest that money in Alaska jobs or production. I support providing tax credits to companies that the state only pays if companies invest in production in Alaska. I will offer amendments allowing enhanced credits for those who drill exploration wells to find new oil; and to develop processing facilities, which today are expensive enough that they make too many modest-sized fields uneconomic.

State money that encourages jobs, production, and action in Alaska are preferable to the Governor’s proposal to just give money to companies through lower taxes, with the caveat that he will allow them to take this money out of this state, and not invest it here, if they wish. The Governor’s approach – to give away state money by the billions, will result in a state that hires fewer teachers, fewer police, fewer construction workers (most road construction projects in Alaska are state funded), fewer firemen, and fewer health professionals. It will increase the unemployment rate, damage housing markets, and bring the Lower 48’s economic crisis to Alaska.

Worser Education, Worser Economy

The Governor has proposed to effectively cut education funding next year. How? By not adjusting funding for inflation, and by leaving funding flat. The Capitol is swarming with school district officials from across the state saying they will have to increase class sizes, and fire teachers under the Governor’s proposal. I have joined Rep. Pete Petersen to adjust funding for inflation (HB 143), and the Senate is working on a similar bill (HB 84). Until Alaska starts moving to join the 42 other states that have voluntary pre-k programs statewide (all proven to increase graduation rates, college attendance, and wage potential, and reduce criminal activity), and starts reducing instead of increasing class sizes, a whole generation will be denied the ability to achieve their highest potential. That’s bad for children, bad for the economy, and bad for jobs.

Moving Bills

Two weeks ago we had a hearing on House Bill 11, which closes an unjustifiable gap in cancer screening coverage in Alaska. Under Alaska law all people with private group insurance are entitled to colon cancer screening. Colon cancer is the third leading cancer killer in the United States. So privately insured and active state employees are entitled to colon cancer screening coverage; those who need it the most aren’t. The American Cancer Society recommends coverage for those over 50. Medicare picks up this cost when you turn 65. It’s a bill that likely will save more money than it costs. As moral and economic imperatives, we’d rather pay less for colon cancer screening than more for treating cancer victims.

Senator Bettye Davis has joined us in filing the same foster care bill we filed on the House side, SB 82. We have been working closely with her office, and testifying, as her bill has moved through the committee process. We are still hopeful Rep. Wes Keller (R. Wasilla) will allow our version of the bill to move on the House side.

Finally, Friday we will have hearing on our bill HB 144 to increase state activity to ensure future generations have the same quality public fishing stream access we have today. Alaskans love to fish, and we should make sure our fishing waters remain publicly accessible. That bill has passed the Fisheries Committee, and is headed to the Resources Committee next.